British businesses plan to raise basic wages by the most in at least seven years, due to recruitment difficulties and a need to keep pay in line with competitors, a survey showed.

The Chartered Institute of Personnel and Development (CIPD) said private-sector employers planned to increase basic pay rates this year by 2.5% on average, the most since the survey started in 2012.

Inflation was the top reason given by firms to the CIPD for expecting pay rises greater than 2%. Recruitment and retention issues and increases in the going rate of pay elsewhere were the other main reasons for raising pay by more than 2%.

The CIPD said public-sector employers expected average pay rises to drop back to 1.1% this year after a temporary rise to 2%, which had reflected a more generous settlement for hospital workers and some other staff. As a result, the overall median wage settlement for employers across the economy remained unchanged at 2%.